What Is EV/EBITDA?
EV/EBITDA is a valuation multiple that compares a company's Enterprise Value (EV) to its EBITDA. It's popular with analysts because it's capital-structure-neutral — it accounts for debt in a way the P/E doesn't.
What enterprise value is
Enterprise Value = market capitalisation + total debt − cash. It represents what it would cost to buy the whole business, taking on its debt and getting its cash. Unlike market cap alone, EV reflects the full price of acquiring the company.
Why it's debt-aware
Because EV includes debt and EBITDA is pre-interest, EV/EBITDA lets you compare companies with very different debt loads on a level field — something the P/E (which is equity-only and post-interest) can't do as cleanly. It's widely used in capital-intensive sectors and in M&A.
The limitations
Like EBITDA itself, it ignores capital expenditure and real cash needs, so it can flatter capital-hungry businesses. Pair it with free cash flow and the debt-to-equity ratio for a fuller picture.